Rival telecom giants team up to buy Leafs

For a shade more than $1.3 billion, multimedia companies Bell and Rogers purchased Dion Phaneuf's Maple Leafs and the rest of MLSE's sports and business holdings. (Getty Images)

2011-12-09 17:09:00

By Nicholas J. Cotsonika

We don't want to believe sports is a business. We want to believe the bottom line is winning, not profiting. We want to believe our passion is shared by ownership, not exploited or leveraged for the benefit of corporations.

That's why it was so exciting for Buffalo Sabres fans in February when Terry Pegula was introduced as their new owner. Here was a billionaire buying his favorite team, pledging to end its tight-fisted ways, tearing up talking about Gilbert Perreault, dreaming of Stanley Cups. Yes, Cups, plural.

And that's why it must have been so surreal for Toronto Maple Leafs fans on Friday when executives from Bell and Rogers announced they were buying a 75-percent stake in Maple Leaf Sports and Entertainment. Here were Canada's two largest telecommunications companies – bitter rivals, direct competitors – forging an unusual alliance because of the strength of the "asset," the access to "premium content" for multimedia "platforms," the "perfect fit" from a "strategic perspective."

The executives played up the fact that these are Canadian companies keeping MLSE in Canadian hands. After all, the Leafs call themselves Canada's team and wear the nation's symbol on their sweaters, and American investors had reportedly been poking around. But the patriotism didn't show any loyalty or personalize anything.

Bell said it will keep its 18-percent stake in the Montreal Canadiens. Bell has its name on the home of the Habs, the Bell Centre. Rogers has its name on the home of the Vancouver Canucks, Rogers Arena. And these are now the owners of the Maple Leafs.

George Cope, the president and CEO of Bell Canada, opened his remarks by saying this was an "incredibly exciting day" for his employees, for MLSE management and "most importantly for the fans of MLSE."

But there are no fans of MLSE, of course.

There are fans of the NHL's Maple Leafs, the AHL's Marlies, the NBA's Raptors and MLS' Toronto FC. I guess you can be a fan of an arena or a condo or a TV channel or any of the other stuff MLSE owns. I know I'm a fan of Real Sports, MLSE's sports bar, which is part of MLSE's real-estate development, which is across the street from MLSE's Air Canada Centre, which houses two of MLSE's teams. But that's different.

Fans see themselves as fans, not consumers. They see themselves rooting for teams, not assets or properties or companies or conglomerates. They have two main questions at a time like this: Does this increase my team's chances of winning a championship, and how does this affect how I follow my team?

When it comes to the Maple Leafs, the centerpiece of this deal, the short answer is that this likely does not increase their chances of winning their first Stanley Cup since 1967. It might lead to a better fan experience, but it might cost more. More than anything, this is a reality check – a reminder of what sports really are and how big of a business they can become.

* * * * *

There is no one way to win.

The best way is with a singular owner with resources and commitment. A singular owner gives the team a face – someone to praise, someone to blame. A singular owner can make the pursuit of winning personal and make decisions that are about more than money.

But singular owners also can be aloof, money-grubbing or meddlesome. They can make bad decisions and spend money unwisely. Pegula went on a shopping spree in free agency, but who was smarter? The Sabres, who signed Christian Ehrhoff and Ville Leino to massive contracts? Or the faceless Leafs, who didn't do anything crazy?

The Maple Leafs might never have a singular owner. They have grown too big. Consider that Pegula bought the Sabres for $165 million. The Leafs are the most valuable team in the NHL at $521 million, according to Forbes, and they are part of MLSE, 80 percent of which was just sold for $1.32 billion. Bell and Rogers each spent $533 million for 37.5 percent. MLSE chairman Larry Tanenbaum kicked in the rest to increase his stake from 20.5 to 25 percent. When you're talking billions, you are drastically reducing the number of individuals who have that kind of cash. So you're talking about companies and investment groups.

One theory is that the Leafs have maximized their revenues (except for, you know, making the playoffs). That would be a good reason for the Ontario Teachers' Pension Plan to sell its 80-percent stake now. MLSE's growth potential lies, first and foremost, in how the Leafs can be used to make money in other ways. A singular owner probably isn't in position to do that. A pension plan isn't positioned to do that. But telecommunications companies are positioned to do just that because the Leafs provide content that can be packaged and sold so many different ways – TV, radio, phones, computers, tablets.

The teachers often were criticized for not wanting to win. That was untrue. Of course they wanted to win. And the telecoms will, too.

"It's all about winning," said Nadir Mohamed, president and CEO of Rogers Communications. "It's all about championships. And there's no confusion from that perspective we have a common interest. By the way, championship teams drive our network business."

No matter your ownership structure, winning can help you make more money. No matter your ownership structure, winning depends on whether you hire the right people and give them the resources and time to do their jobs right.

Resources aren't the reason the Leafs haven't made the playoffs since 2004, and they won't be an issue in the future, either. The NHL has a cap on players' salaries. The Leafs can spend to the limit – and even exceed it by burying troublesome contracts in the minors (see Finger, Jeff). There is no cap on executive pay. As I have written before, the Leafs have more GMs than General Motors (see Burke, Brian; Nonis, David; Poulin, Dave; Loiselle, Claude; Dudley, Rick).

The question has been and always will be whether the Leafs have hired the right people and whether they are giving them time to do their jobs right.

In the past, the teachers were criticized for focusing on the short-term balance sheets, pushing to make the playoffs to rake in all that revenue, not sticking to a long-term plan. The pattern continued up to the Phil Kessel deal in September of 2009, as rebuild-on-the-fly Burke traded two first-round draft picks and a second-rounder to the Boston Bruins for one young sniper, as if the Leafs were just a player away.

Lately, the Leafs have shown patience. Burke seems to have re-evaluated the team and has made some smart moves to position it for the future. And maybe nothing will change in terms of how the Leafs are run, for better or for worse.

"Everyone wins when a franchise or any of the organizations win," Cope said, "and these two companies know how to win and will be focused on that with a great MLSE management team going forward."

Cope said it will be "the management of MLSE that will be leading this great asset," and Tanenbaum will remain in charge.

But what has Tanenbaum won so far?

And will the Leafs go right back to being impatient again, only even worse? Bell and Rogers know how to win in terms of traffic and ratings. They will want to win, all right. They will want to win now, now, now in this new media world of instant metrics. Is that best for the long-term planning needed to build a perennial championship contender?

* * * * *

There is the competition between the Leafs and the rest of the NHL. Then there is the competition between Bell and Rogers, who fight for ears and eyeballs from TV to radio to phones to the Internet. Bell is TSN. Rogers is Sportsnet.

This is Coke and Pepsi buying the same soda formula and figuring out how many ways it can sell it to a parched public.

When Cope said he would hand Mohamed the microphone slowly later, Mohamed finally took the mic and said: "I won't make reference to slow networks or anything in terms of the speed of the transfer."

More laughs.

"This could go on I could see for some time."

Leafs fans can only hope he wasn't talking about the playoff or Cup droughts.

This situation seems ripe for infighting on every issue – from how the team is run to how all that premium content is packaged on all those platforms. TSN and Sportsnet reportedly will split the radio rights next season, but the execs were vague about how the TV rights will be divided.

These companies have partnered before. But the 2010 Vancouver Olympics were one thing, a one-time event that lasted a few weeks. This is something else entirely, a multi-headed monster that operates year round and includes one of Canada's crown jewels.

Cope and Mohamed both said this will increase competition, not discourage it. That should be true from an editorial standpoint. TSN and Sportsnet reporters won't be working hand-in-hand. They will be going toe-to-toe.

"For the consumer, it means more choice," Cope said. "We will be racing each other to get this content on our devices faster than the other guy and doing all those type of things, all which drive competitive positioning in the marketplace."

But that was the case already.

The difference is what happens when that content reaches those devices in the future. Bell and Rogers will control all of that content, and they also will control how much they charge for advertising and subscriptions. At least on some level, they will be cooperating from a business standpoint, not competing. They can jack up the prices.

The Competition Bureau of Canada reportedly will review the deal. A spokesperson for the Ottawa-based watchdog told the National Post that part of the bureau's mandate is to determine if this will "result in a substantial lessening or prevention of competition." But I assume Bell and Rogers did their legal homework. Cope and Mohamed shrugged off a question about regulatory concerns.

In the modern age of the DVR, sports programming is the last thing people sit down to watch as it happens. That is incredibly valuable, so valuable that Bell and Rogers were willing to come together to cash in on it – perhaps in fear of a third party coming in and swiping all that business from them both.

"MLSE offers some of the richest, most sought-after content in North America," Mohamed said, "and this investment will secure a long-term access to all of this iconic brand and content."

In other words, this investment will secure a long-term access to the heartstrings and purse strings of Toronto fans – a captive audience in more ways than one.